Voluntary payment of short-paid duty before notice defeats penalty demands and sustains relief against disproportionate excise action.

Short-paid central excise duty paid before the show cause notice fell within Section 11A(2B) of the Central Excise Act, 1944, so the demand and related proceedings were unsustainable. Penalties imposed under Section 11AC, Rule 25 of the Central Excise Rules, 2002, and the CENVAT Credit Rules were found grossly disproportionate to the duty involved, and the adjudication reflected non-application of mind. The appellate order setting aside the demand and penalties was upheld, and the departmental challenge failed.

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Issues: Whether the demand, interest and penalties were sustainable where the short-paid duty had already been paid and the case involved a trivial amount, and whether the departmental appeal challenging the setting aside of the adjudication order could succeed.

Analysis: The short payment had been made good before the show cause notice, and the case fell within the scope of Section 11A(2B) of the Central Excise Act, 1944. The adjudicating authority had nevertheless issued notice and imposed penalties grossly disproportionate to the duty involved, including penalties under Section 11AC of the Central Excise Act, 1944, Rule 25 of the Central Excise Rules, 2002, and the CENVAT Credit Rules. The appellate order was found correct in holding that the adjudication reflected non-application of mind, and the departmental review and appeal were treated as unwarranted in the circumstances.

Conclusion: The departmental challenge failed and the order setting aside the demand and penalties was sustained.

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